STATE OF MARYLAND

Notes to General Purpose Financial Statements
for the year ended June 30, 1989

1. Financial Reporting Entity and Description of Funds and Account Groups:

The accompanying financial statements of the State of Maryland present the financial position of the
various fund types and account groups, the results of operations of the various fund types, and the changes
in financial position of the enterprise funds and pension trust fund.

The financial statements of the State have been prepared in conformity with generally accepted
accounting principles (GAAP) as applied to government units. The Governmental Accounting Standards
Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial
reporting principles. The more significant of the State's accounting policies are described below:

A. Reporting Entity:

The financial statements include the various departments, agencies, and other organizational units
governed by the General Assembly and/or constitutional officers of the State of Maryland.

In evaluating how to define the government for financial reporting purposes, management has considered
all potential component units. The decision to include a potential component unit in the entity was made by
applying the criteria set forth in GAAP. The basic, but not the only, criterion for including a potential
component unit within the reporting entity is the State's ability to exercise oversight responsibility. The most
significant evidence of this ability is financial interdependency. Other evidence of the ability to exercise
oversight responsibility includes, but is not limited to, the selection of governing authority, appointment of
management, constitutional officers' ability to significantly influence operations, and accountability for fiscal
matters. A second criterion used in evaluating potential component units is the scope of public service.
Application of this criterion involves considering whether the activity benefits the State and/or its citizens
or is generally available to its citizens. A third criterion used to evaluate potential component units for
inclusion or exclusion from the reporting entity is the existence of special financial relationships, regardless
of whether the State is able to exercise oversight responsibilities.

Based on the application of these criteria, the following component units are included within the reporting
entity:

Maryland Industrial Development Financing Authority

Maryland Housing Fund

Community Development Administration

Maryland Small Business Development Financing Authority

Maryland Water Quality Revolving Loan Fund

Maryland Food Center Authority

Maryland Transportation Authority

Maryland State Lottery

Maryland Environmental Service

State Use Industries

Maryland Higher Education Loan Corporation

Maryland Deposit Insurance Fund Corporation

Maryland Stadium Authority

Unemployment Insurance Program

Maryland Retirement and Pension Systems

University of Maryland System

St. Mary's College of Maryland

Morgan State University

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